Bjarte Bogsnes joins us as the first guest blogger for 2018. Bjarte is a speaker at The Deep Dive 2018 (22-23 March in Sydney) and Chairman, Beyond Budgeting Institute Senior Advisor Performance Framework at Statoil.
The world of management is full of myths and rituals. Many seem to have been with us forever, often explained and justified as “we have always done it like this”. Some have a shorter history, often introduced because “everybody else is doing it”.
One of these rituals definitely feels like it falls in the first category. Target setting seems to always have been there. In most organisations this is actually not true. If we go back 20-30 years, the situation was quite different. There were far fewer targets around. Yes, there were (and still are in many organisations) detailed budgets which often represented targets. These were mainly financial numbers, however. The birth of the Balanced Scorecard in the late nineties led to a massive increase in non-financial metrics, resulting not only in much more measurement through KPIs, but also in much more target setting on these. This new way of managing later spread to the public sector, where “New Public Management” has also led to an amazing increase in measurement and target setting.
Along the way we seem to have forgotten that “the target is not the target”. It is not about hitting a number. What we really want is the best possible performance, given the circumstances. Setting targets is one way of achieving this, but not the only way and too often not the best way.
The target myths.
Rituals aren’t necessarily a problem. Myths are different, because they are typically not true. There are three strong myths surrounding targets, all seemingly undisputable justifications for this popular management practice.
- Without targets people won’t know what to do
- Without targets people will not be motivated to perform
- Without targets we are unable to evaluate performance
These myths are, however, not just disputable. They are simply not true. Here is why.
Let me first make a clarification. The targets and the target setting I challenge here are numerical targets. They are very specific, different from more general ambition statements with rounded numbers, such as “in the range of”, or “towards”. In addition, they are absolute, not relative where our performance is compared with others. They are typically set from above, in order to control, punish and reward. I have less problems with targets people set for themselves to learn and improve, although these can also be problematic if taken too literally.
“Without targets people won’t know what to do”. Not true. Words can often address direction and expectations much more clearly and intelligently than what any single number can do.
“Without targets people will not be motivated to perform”. Not true. Many, including myself, are much more fired up by the right words, igniting our hearts in a very different way than those clinical and decimal-loaded numbers which only reach our brains.
“Without targets we are unable to evaluate performance”. Not true. This one might be the most solid myth to bust, so let us dive a bit deeper here.
No target. No performance evaluation?
A target is trying to describe what good performance looks like at one point in time down the road, for instance at year-end, in the case of an annual target. This can be difficult, especially when there is a lot of uncertainty that we can’t control. Where is the market going? What will competitors do? And what about the oil price and exchange rates? We have to make a number of assumptions about all these uncertainties, forcing us to be quite subjective even if we don’t want to. But when we finally land on a specific number, the subjectivity seems to disappear. Now it has all become more orderly, and we can focus on measuring whether we are hitting the number or not.
What we have been through, however, is actually a premature performance evaluation, and quite a difficult one, due to all that uncertainty forcing us to make all those guesses. Wouldn’t it make more sense to do this job afterwards only, when all the uncertainty is gone? We then know what happened with markets and competitors. We know how the oil price and exchange rates moved, and a lot more. Why should we let a yardstick decided twelve months ago be the judge, when we can now look at facts instead of all those guesses we made back then? Most of us know what good performance looks like when we see it.
Targets work. That’s the problem.
Many will still argue that target setting works. “What gets measured gets done”. Yes, targets do work. That is actually the problem. Managers hitting their target is however no guarantee whatsoever that this was their best possible performance, given the circumstances. Maybe some could have performed even better, because assumptions changed. Others had a lot of headwind and might have performed great even if they didn’t hit their target. But we only know this afterwards!
Targets are often expressed through KPIs. Those still insisting on setting targets should not forget that the “I” in KPI stands for “Indicator”. They are seldom telling the full truth, which is probably why they are not called “KPTs”: Key Performance Truths. We have to look behind the indications before we can conclude.
Zooming blindly in on targets can therefore be highly problematic, even dangerous, especially when there is no change in assumptions. Volkswagen and Wells Fargo are recent and sad examples of blind KPI target management running the show.
A holistic performance evaluation.
If we do set KPI targets, both the uncertainties discussed require that we take hindsight insights into account:
- Indicator uncertainty – how big is the “I”?
- Target uncertainty – what is the right number?
In addition, there are also other questions that should be asked in such a holistic performance evaluation. How did we achieve our results? Which risks were taken? How sustainable are delivered results?
Some would argue that all this assessment on top of measurement makes the performance evaluation too subjective. They prefer the objectivity of only looking at actual versus target, end of story. But as we just have discussed, this is an illusion of objectivity, due to all the subjectivity going into target setting in the first place.
The longing for full objectivity might also have something to do with managerial laziness. It is obviously much easier to compare two numbers only and conclude. Making a deeper performance assessment by looking at what really happened and digging behind measured results in order to reveal the true underlying performance takes an effort. It takes leadership. Some find that cumbersome, even difficult. But we need leaders with competence beyond the ability to compare numbers. Leadership is not meant to be easy.
If you are new to, but intrigued by these reflections, you might wonder if it’s all nice theory and wishful thinking. It’s not. Many organisations have either skipped or never introduced targets. For instance, check out Handelsbanken or Miles, two great companies who not only operate without targets but also without most other management rituals, including budgeting.
There is a better way!
PS: Linking incentives like individual bonus to targets will only turbocharge the many challenges described above. It also opens up another management myth; what is it that really motivates us? This topic is so big that it deserves its own article. Stay tuned!
Want to hear more from Bjarte? Join him at The Deep Dive, a unique event experience for leaders and executives, taking place on 22-23 March 2018 in Sydney. Or sign up for a one-day workshop with Bjarte in Melbourne on 20 March!
This article was originally published on Bjarte’s LinkedIn page.